Uber/Postmates: ride to live, live to ride

Postmates generated $107m of revenue in the first three months of 2020. Picture / Postmates Blog

Lex COMMENT

Postmates will miss out on a dramatic IPO launch party on the floor of the New York Stock Exchange or at Nasdaq headquarters. Postmates investors may, instead, get something more coveted than corporate pageantry: actual synergies.

On Monday, the online food delivery service announced that it will be gobbled up by Uber, fusing it with its own Uber Eats. The mooted deal price was $2.65bn. Its VC backers will receive Uber shares, no cash. Effectively, Postmates will become a unit of a publicly traded transport company.

Uber, fresh after its failed acquisition of the larger delivery app Grubhub, promised $200m of annualised deal benefits from adding lossmaking Postmates (so expect serious lay-offs). Nominally, the deal price is a slight premium to the group's 2019 valuation. However, its shareholders now depend on Uber's success in ride-hailing, not food delivery, owning about 5 per cent of Uber once the deal closes.

The good news is that though Uber shares are down a fifth from their highs for the year, they have more than doubled off its lows in March. On more than $600m of gross bookings, Postmates generated $107m of revenue in the first three months of 2020. Uber Eats by contrast had more than $500m of top line in that same time period and recorded a whopping operating loss of $300m. Losses of more than $1bn in the previous 12 months show UberEats' bloated cost structure and the opportunity for cost-cutting after buying Postmates.

Postmates and Grubhub have different business models. Notably, Grubhub typically does not have its own delivery fleet and really just generates leads for restaurants. Sticklers might well wonder why Uber would buy any large food delivery service. At least the Uber rides business, at almost seven times the revenues of Uber Eats, earns gross profits even if overall growth has slowed.

Still, the market applauded. Uber shares rallied 6 per cent on Monday, so Postmates shareholders should already feel good about riding with Uber, instead of listing. But the continued upward trend of their new Uber shares will require more than just $200m of savings in food delivery.

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